The official blog of Illinois Issues magazine,
published by the Center for State Policy and Leadership
at the University of Illinois Springfield

Wednesday, February 27, 2013

Supporters hopeful about new bipartisan pension bill

By Jamey Dunn

Lawmakers who have been spearheading recent pension reform efforts have introduced yet another plan they say could garner strong support from Republicans and Democrats.

The changes to benefits for current employees in House Bill 3411 are identical to a bill Northbrook Democratic Rep. Elaine Nekrtiz and Sen. Daniel Biss introduced in December. Biss, an Evanston Democrat, was serving in the House at the time. “Everyone was working in good faith. Everyone was pulling in the same direction, but fundamentally, we were never able to get a bill that a critical mass of both Democrats and Republicans could support,” Biss said at a news conference to unveil the legislation today. “We had a bill that had a lot of Democrats and a few brave, or maybe foolhardy, Republicans, and then we had a bill that had a lot of Republicans and a few brave, or maybe foolhardy, Democrats. And we all knew that there was a way of meeting in the middle that could put together both coalitions at once, and I think today we’ve found it.” Biss introduced identical language to HB 3411 in his chamber as Senate Bill 35. The legislation would:

Increase employee contributions by 2 percent of their salaries. The increase would phase in over two years.

Allow cost of living adjustments [COLAs] on only the first $25,000 of a retiree’s pension, or on only $20,000 for those who receive Social Security benefits. COLAs would not kick in until a retiree turns 67 or five years after retirement, whichever comes first.

Increase the retirement age for employees younger than age 46. Employees from age 40 to 45 would see a one-year increase, employees 35 to 39 would see a three-year increase and employees 34 and younger would see a five-year increase.

Limit the amount of pensionable income to the Social Security wage base, which will be $113,700 in 2013, or the employee's current salary, whichever is greater.

Guarantee that the state make required annual payments to the pension systems.

Biss estimated that if the measure were approved and upheld by the courts to go into effect by July, it could shave $2 billion off the state’s pension payment for the next fiscal year. It would reduce the unfunded liability by an estimated $28 billion and fully fund the systems by 2043.

A new component of the proposal would place all employees of schools outside of Chicago, university and community college employees hired after January 1, 2014, into a so-called hybrid plan that has a defined benefits component and a defined contribution component. Schools, colleges and universities would be responsible for the cost of these plans and could offer an optional employer match of 3 percent to 10 percent of an employee’s pay for the 401(k)-like component of the hybrid plan.
It is the hybrid plan for new workers that proponents point to as the compromise that will help them build support. Schools and colleges will take over the cost of retirement benefits for future employees, but the measure does not contain the cost shift of future benefits for all employees, which was strongly opposed by many Republicans.
“So at the end of the day, the state, for these two systems, is out of the pensions business,” said House Minority Leader Tom Cross. “We think that is the wave of the future. It’s the way that many other states have gone and obviously the private sector. And it’s the only way we think as a state we can sustain a pension system and take care of our employees at the same time.”

A statement from union leaders called the plan “a step backwards” in the debate over pension reform. “Like the previous approach, HB 3411 continues to focus on unfair, unconstitutional benefit cuts that erode the value of retirees’ pensions. Now, it also creates a hybrid 401(k) plan that would harm retirement security for a new generation, even though this feature does not substantially address the state’s unfunded liability. Employees like teachers, state university personnel, and police officers already do not receive Social Security, and more than half of their retirement would be at market risk under a hybrid proposal like HB 3411,” The We Are One Coalition said in a news release. “Traditional defined-benefit pensions simply work better than defined-contribution plans — even hybrid plans. Defined-benefit plans are more efficient at providing retirement income. They generate better returns, and they diversify holdings and spread risk more effectively. Moreover, ongoing costs for defined-contribution plans exceed those of defined-benefit plans.”

The bill comes the day before the House is expected to consider several pension amendments from House Speaker Michael Madigan. Amendments filed by Madigan would:

However, the House is not expected to take a final vote on any of these proposals. Tomorrow’s session will likely be similar to Tuesday’s session that focused on concealed carry, when House members voted on several amendments but did not pass a bill.

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The bureau follows state government from the Capitol Press Room and writes articles for Illinois Issues magazine, published by the Center for State Policy and Leadership at the University of Illinois at Springfield.
Contact: illinois.issues@gmail.com